Federal Court Rejects DOJ’s Novel and Extraterritorial Effort To Extend FCPA Jurisdiction to Foreign Agents

Key Takeaways

• A federal district court in Texas recently dismissed criminal charges against a Swiss resident and citizen under the Foreign Corrupt Practices Act ("FCPA"), holding that the court lacked jurisdiction over a foreign defendant who commits no act in the United States and otherwise has little connection to the United States.

• The court also held that the FCPA was unconstitutionally vague as applied, following a recent trend set by the U.S. Supreme Court to scrutinize statutes for vagueness.

• Together, the court's holdings curtail attempts by federal authorities to use U.S. laws extraterritorially to bring criminal charges against foreign defendants based on acts that occur entirely outside the United States.

• In addition, this latest setback to the Department of Justice's ("DOJ") FCPA enforcement machinery is yet another example of courts rejecting DOJ's broad-and often untested-interpretation of its enforcement authority, confirming that litigating FCPA statutory questions can prove to be a successful legal strategy.

Introduction

The United States District Court for the Southern District of Texas recently recognized new constitutional and extraterritorial limits on the FCPA. In an order entered November 10, 2021, the court held that it lacked jurisdiction over FCPA and money laundering charges brought against a Swiss resident and citizen, Daisy T. Rafoi-Bleuler. Significantly, the court grounded its decision not only in the FCPA's text, but also in the Due Process Clause's requirement that the statute not be unconstitutionally vague.¹

Another Federal Court Limits the FCPA

According to the indictment, Ms. Rafoi-Bleuler, a Swiss resident and citizen, provided banking services to assist a state-owned Venezuelan oil company ("PDVSA"), along with its wholly owned U.S. subsidiary ("PDVSA-US"), in concealing an illegal kickback and bribery scheme. After PDVSA and PDVSA-US awarded bids in exchange for bribes and kickbacks, Ms. Rafoi-Bleuler allegedly set up bank accounts in foreign locations to launder their illegal gains. The government charged Ms. Rafoi-Bleuler with violating the FCPA and the U.S. money laundering statutes.

None of Ms. Rafoi-Bleuler's actions took place in the United States, however. And recently, the Second Circuit in United States v. Hoskins held that the FCPA, although clearly covering some conduct abroad, must be interpreted consistent with the longstanding presumption against the extraterritorial application of U.S. law.² Relying on Hoskins, the district court held that the FCPA does not apply to foreign nationals unless they either (a) act illegally in the United States, or (b) act extraterritorially as an "officer, director, employee, or agent" of a U.S. "domestic concern."³ (The FCPA applies to U.S. citizens, nationals, or residents, even if their actions occur entirely outside the United States.)⁴ The government here alleged that despite the fact that Ms. Rafoi-Bleuler was not a citizen or resident of the United States, and had committed no illegal act in the United States, she nonetheless was an "agent" of PDVSA-US (the U.S. "domestic concern") by virtue of her setting up foreign bank accounts for PDVSA and PDVSA-US.⁵

Court Finds the Defendant Is Not an Agent of a "Domestic Concern." The court granted Ms. Rafoi-Bleuler's motion to dismiss the indictment. According to the court, the government could not establish jurisdiction simply by asserting that Ms. Rafoi-Bleuler was an "agent." Instead, it needed to establish agency through evidence "in a way that satisfies the jurisdictional requirements of the statute." Per the court, the common-law definition of "agency" required evidence of mutual assent that PDVSA-US controlled the details of Ms. Rafoi-Bleuler's assignment. But despite allegations that Ms. Rafoi-Bleuler had agreed to set up bank accounts for PDVSA and transfer funds for it, the court held that such evidence of an agency relationship was lacking here.

Court Finds the FCPA Is Unconstitutionally Vague as to the Term "Agent." Notably, the court separately held that the FCPA was unconstitutionally vague as applied to Ms. Rafoi-Bleuler. Under the Due Process Clause of the U.S. Constitution, no criminal statute may be enforced when it "fails to provide a person of ordinary intelligence fair notice of what is prohibited."⁶ Here, the court reasoned that the application of the FCPA's term "agent" to Ms. Rafoi-Bleuler, in the absence of the type of evidence of an "established agency relationship" described above, was "such a novel application" that ordinary people would not have had fair notice that the FCPA could be so expansively applied. The government's novel interpretation of the FCPA would therefore render the FCPA unconstitutionally vague as applied to Ms. Rafoi-Bleuler.

Recent Trends in Federal Court

Extraterritorial Application of Federal Statutes. The court's opinion tracks several recent developments in federal prosecution policy and Supreme Court precedent. In recent years, the Department of Justice has increased its prosecutions of cross-border criminal activity, sometimes bringing charges against defendants with little, or seemingly no, connection to the United States. However, such prosecutions may run counter to a long line of Supreme Court precedent that has repeatedly confirmed, including in a number of recent decisions, that federal statutes do not apply extraterritorially without a clear Congressional statement to the contrary.⁷ Indeed, the Second Circuit's decision in Hoskins used this "presumption against extraterritoriality" to limit the reach of the FCPA in the same way as the Rafoi-Bleuler court.⁸

Void-for-Vagueness Limitations. Moreover, the U.S. Supreme Court also has recently stepped up its enforcement of the Due Process Clause's void-for-vagueness limitations, striking or limiting several criminal statutes on vagueness grounds.⁹ In particular, the Court has emphasized that "'[t]he prohibition of vagueness in criminal statutes' . . . is an 'essential' of due process, required by both 'ordinary notions of fair play and the settled rule of law.'"¹⁰ The Southern District of Texas's decision in Rafoi-Bleuler shows how vagueness concerns may animate the courts, especially in the criminal context, where the doctrine performs a similar function to the rule of lenity, constraining the government's ability to advance broad readings of criminal statutes. Strikingly, the decision may also point to an interplay between vagueness and extraterritoriality concerns in cases where the government brings novel criminal charges against foreign defendants who commit no act in the United States and otherwise have little connection to the United States.

As such, Rafoi-Bleuler is yet another example of a court rejecting DOJ's broad interpretation of its enforcement powers. And, it serves as another reminder that defendants can achieve litigation success when they elect to challenge in court the DOJ's novel and aggressive interpretations of the FCPA or other federal criminal statutes.

The Second Circuit Will Likely Return to This Issue Soon. The Second Circuit will likely soon issue a new decision concerning the government's agency theory under the FCPA. After Hoskins, 902 F.3d at 96-97, the District of Connecticut vacated defendant Lawrence Hoskins' conviction on the grounds that the government had failed to establish that Mr. Hoskins was an "agent" of a "domestic concern" under the FCPA. United States v. Hoskins, No. 3:12-cr-238, 2020 WL 914302 (D. Conn. Feb. 26, 2020). The government appealed, and the Second Circuit heard oral argument on August 17, 2021. See United States v. Pierucci (Hoskins), No. 20-842. The Second Circuit therefore may soon provide additional guidance concerning when a defendant may be deemed an "agent" under the FCPA.

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